Washington, D.C.–The Treasury Department and the Internal Revenue Service (IRS) today issued Revenue Ruling 2008-7 that addresses the application of the accrual rules for pension plans under section 411(b)(1) of the Internal Revenue Code (commonly referred to as “backloading” rules).

Revenue Ruling 2008-7 analyzes a traditional pension plan that was converted into a cash balance pension plan prior to the effective date of the new conversion requirements under the Pension Protection Act of 2006.The scenario analyzed in the revenue ruling is one in which certain participants had their pensions determined using the greater of (1) the benefit under a continuation of the pre-conversion plan formula for a limited number of years after the conversion date and (2) the benefit under the new cash balance formula.

The ruling illustrates how, under the current regulations, the backloading rules apply to this scenario.The ruling provides relief to ensure that plans that have requested or received a determination letter from the IRS and certain other plans will not be disqualified for plan years beginning before January 1, 2009 solely because the plan provides benefits based on the greatest of two or more formulas.

In addition, Treasury and the IRS anticipate proposing amendments to the regulations that will allow separate testing of backloading with respect to the scenario under the revenue ruling and other “greater of” formulas.It is expected that the regulations will be issued soon and will be proposed to be effective for plan years beginning on or after January 1, 2009.